Commercial and government organizations must understand the economic consequences of their monetary expenditures to be efficient and productive. The monetary influx stemming from an organization's payroll, suppliers, purchases and other downstream budgetary allocations can have a dramatic and surprising impact on a region's economy. Local economic vitality affects most any organization, and those organizations have an interest in seeing to it. A true understanding of an organization's role in the local economy can help private, public and nonprofit organizations optimize supply chains, secure more government incentives and increase the effect of purchasing on local economic development.
Correctly gauging that potential impact helps decision makers better understand the organization's importance to the area and can help improve the economic vitality of the region. For example, a nonprofit organization may spend one million dollars to build a headquarters. The monetary allocation does not disappear, but rather becomes wages to builders and revenue to suppliers, among other expenditures. The builders, in turn, will have income to spend, and may combine to spend one and a half million, themselves. As such, understanding economic consequences can be used to predict changes needed to stimulate a regional industry or economy. Such economic considerations should drive decisions to invest in a particular commercial venture. Organizations should consequently know how to strategically use their budgets. Such knowledge must include an understanding of how the downstream exchange of information impacts local and nonlocal economies.
To this end, numerous manuals and studies have been published on the topic. However, such publications can be difficult to apply to real business ventures, as the complexities of budget and expenditure analysis take years of experience to appreciate. Such analysis also requires extraordinary organizational and mathematical skills. Most organizations do not have such expertise in-house, and consequently must hire consultants to analyze the effects of their spending. Such consultation services can be expensive for many organizations, however. Moreover, the results of some consults may seem relatively subjective and remain difficult to understand for organizations.
Some conventional economic analysis is based on input-output methodologies. Input-output analysis generally shows how the output of one industry is an input for another industry. Such analysis requires massive datasets that quickly become dated. Conventionally gathering the requisite data is too time consuming and expensive to be feasible. Economists are consequently relegated to using models with aggregated production employment, and trade data from local, regional, and national sources, such as the Census Bureau.
The labor and cost intensive nature of such studies further causes them to be accomplished sporadically, only when there is an exceptional need. For instance, a study may be undertaken only when an organization is considering a large capital project or a grant evaluation. Studies timed as such are not used in the more frequent day-to-day operations or strategic planning of the organizations.
Studies and other methods of gauging economic impact often cannot be focused on any specific geographical area, leading to unreliable and unfocused data pools. That is, analysis generally represents an average across an entire industry and is not specific to the unique circumstances of a particular organization. The unreliable, expensive and/or confusing nature of studies may cause business decision makers to altogether ignore the potential or actual effects of their business on a local community.
There consequently exists a need for an improved manner of determining an economic impact of a business venture on a target community.